The following is the Dividend Discount Model (DDM) used to price stocks:
### P_0 = \frac{d_1}{r-g} ###Assume that the assumptions of the DDM hold and that the time period is measured in years.
Which of the following is equal to the expected dividend in 3 years, ## d_3 ##?
Calculate the effective annual rates of the following three APR's:
- A credit card offering an interest rate of 18% pa, compounding monthly.
- A bond offering a yield of 6% pa, compounding semi-annually.
- An annual dividend-paying stock offering a return of 10% pa compounding annually.
All answers are given in the same order:
##r_\text{credit card, eff yrly}##, ##r_\text{bond, eff yrly}##, ##r_\text{stock, eff yrly}##
Find Trademark Corporation's Cash Flow From Assets (CFFA), also known as Free Cash Flow to the Firm (FCFF), over the year ending 30th June 2013.
| Trademark Corp | ||
| Income Statement for | ||
| year ending 30th June 2013 | ||
| $m | ||
| Sales | 100 | |
| COGS | 25 | |
| Operating expense | 5 | |
| Depreciation | 20 | |
| Interest expense | 20 | |
| Income before tax | 30 | |
| Tax at 30% | 9 | |
| Net income | 21 | |
| Trademark Corp | ||
| Balance Sheet | ||
| as at 30th June | 2013 | 2012 |
| $m | $m | |
| Assets | ||
| Current assets | 120 | 80 |
| PPE | ||
| Cost | 150 | 140 |
| Accumul. depr. | 60 | 40 |
| Carrying amount | 90 | 100 |
| Total assets | 210 | 180 |
| Liabilities | ||
| Current liabilities | 75 | 65 |
| Non-current liabilities | 75 | 55 |
| Owners' equity | ||
| Retained earnings | 10 | 10 |
| Contributed equity | 50 | 50 |
| Total L and OE | 210 | 180 |
Note: all figures are given in millions of dollars ($m).
You just started work at your new job which pays $48,000 per year.
The human resources department have given you the option of being paid at the end of every week or every month.
Assume that there are 4 weeks per month, 12 months per year and 48 weeks per year.
Bank interest rates are 12% pa given as an APR compounding per month.
What is the dollar gain over one year, as a net present value, of being paid every week rather than every month?
Question 442 economic depreciation, no explanation
A fairly valued share's current price is $4 and it has a total required return of 30%. Dividends are paid annually and next year's dividend is expected to be $1. After that, dividends are expected to grow by 5% pa. All rates are effective annual returns.
What is the expected dividend cash flow, economic depreciation, and economic income and economic value added (EVA) that will be earned over the second year (from t=1 to t=2) and paid at the end of that year (t=2)?
A young lady is trying to decide if she should attend university or not.
The young lady's parents say that she must attend university because otherwise all of her hard work studying and attending school during her childhood was a waste.
What's the correct way to classify this item from a capital budgeting perspective when trying to decide whether to attend university?
The hard work studying at school in her childhood should be classified as:
Question 545 income and capital returns, fully amortising loan, no explanation
Which of the following statements about the capital and income returns of a 25 year fully amortising loan asset is correct?
Assume that the yield curve (which shows total returns over different maturities) is flat and is not expected to change.
Over the 25 years from issuance to maturity, a fully amortising loan's expected annual effective:
Telsa Motors advertises that its Model S electric car saves $570 per month in fuel costs. Assume that Tesla cars last for 10 years, fuel and electricity costs remain the same, and savings are made at the end of each month with the first saving of $570 in one month from now.
The effective annual interest rate is 15.8%, and the effective monthly interest rate is 1.23%. What is the present value of the savings?
Question 974 foreign exchange rate, monetary policy, no explanation
Suppose the market expects the Bank of Japan (BoJ) to increase their short term interest rate by 15 basis points at their next meeting. The current short term interest rate is -0.1% pa and the exchange rate is 100 JPY per USD.
As expected, the BoJ announce that they will increase short term interest rate by 15 basis points.
What do you expect to happen to Japan’s exchange rate on the day when the announcement is made? The Japanese Yen (JPY) is likely to: